Wednesday, November 05, 2003

PCs = TVs: A shift in the matrix Whenever the competition matrix shifts in an industry, the current leaders are vulnerable to disruption. Even a well-established oligopoly can be threatened when a new set of competitors enter the market from an unexpected direction. And it's particularly true when established companies in one field see an opportunity (often thanks to new technology) to flip over their expertise into a parallel market. That's what seems to be in store for the TV manufacturing industry. For years, it has been relatively stable, with a powerful set of (mostly Japanese) companies dominating the field. Such top firms as Sony, Panasonic, Philips, Hitachi, Toshiba, and JVC certainly battled for market share, but it was a small club. In the last few years there have been troubling signs: first Korean and then Chinese TV manufacturers started grabbing market share. The whole HDTV (high definition TV) push has been slowed by a combination of factors: above all, protectionist standards squabbles and the chicken-and-egg problem of getting someone to produce HDTV programming. Meanwhile, TVs are more a commodity than ever, and prices are low. But now an even bigger challenge is in store, according to a recent PC World article ("Should You Buy a TV from a PC Maker?", 11/3/2003). That article takes note of the growing interest from computer manufacturers in crossing the line into the consumer electronics industry. That started with Apple iBox music player, but it is moving along with TV offerings from Dell and Gateway. This energetic move into television represents a serious threat. As the article states "Soon, PC makers are likely to offer more cutting-edge TV products than most consumer electronics vendors--and to sell them at a lower price." This shift in the competition matrix comes thanks to several new technical and market issues. The slow but inevitable growth of digital television, which includes HDTV and DVDs. The improvement and falling price of thin, high-resolution LCD and plasma screens, which are starting to take over the PC industry, replacing bulky CRT monitors. The growing number of people who have high high-speed Internet connectivity through their cable TV company The growing desire for on-demand programming, available when the viewer wants to see it. Both Windows and Mac operating systems are developing ever more sophisticated tools for media display and manipulation. All of these factors set the stage. Gateway was the first PC maker to get into the TV industry, and it's doing pretty well. It specializes in high-end plasma TVs, and it's already the leader in US market, having beaten out Sony and others. Now that's still a tiny market, as a 42-inch plasma TV can cost over ten times as much as a 21-inch CRT TV. But there are buyers out there. And, as the article points out, Gateway is beating Sony on price. It's not that their costs are lower; it's that PC makers are used to taking very small margins, while traditional TV makers are not: The nature of how consumer electronics have been sold to date is very different than the PC market. The consumer electronics industry is based on profit margins of 30 to 40 percent," O'Donnell {an industry expert from IDC] says. "The PC industry is used to working on a 10 to 12 percent profit margin. The bottom line is, they can take an identical product and the PC company can sell it for less, because they're accustomed to operating on a lower profit margin. Both Gateway and Dell are cutting prices compared to their rivals by selling direct, avoiding the middleman markup and inventory issues of distributed selling. To a world increasingly used to buying computers out of a catalog or on a Web site, this makes perfect sense. But the big advantage may be in agility. Computer companies have to reinvent their offerings rapidly to compete, and the cycle time from idea to execution is very short. The consumer electronics industry moves much more slowly, and it has sold essentially the same TVs, with minor improvements, for many years. If, as most observers predict, this mix of computer and video happens fast, the Dells, Gateways and HPs will be at a major advantage. True, some established TV makers are also in the PC business, notably Sony, Toshiba, and Sharp. But they have several problems. The TV and PC divisions are on different sides of the org chart, and have no experience of working together. Second, these PC divisions have not been major innovators, maybe because they have not been forced to respond to the seething US market. The transformation in the competition matrix means that the TV oligopoly suddenly has moved into a new industry, the computer/video industry, one in which there supremacy is definitely not a given. Given all this, the big TV markers have to be scared that they will be outflanked, especially by the hard-driving Dell operation. They have a new, unexpected set of challengers, and these challengers may have some big advantages. People will come to realize that high-definition, flat-panel TVs are more like monitors than regular TVs, so there's no disadvantage to buying them from PC companies," O'Donnell says. "I think there's going to be a big shake-up in the market. And I'd be very nervous if I was a big consumer electronics company who hadn't figured that out." 11:30:11 AM

comment []